NEW YORK (TheStreet) -- General Electric (GE) - Get Report is combining its oil and gas business with Baker Hughes (BHI) to form a new company in a "tremendously creative kind of transaction" valued at $32 billion, rather than buying the company because it provides the best of both worlds, GE Chairman & CEO Jeff Immelt said on CNBC's "Squawk on the Street" on Monday morning.
"By this point I've seen every different kind of transaction. I think this gives us an opportunity to create all the synergies of a combined GE and Baker Hughes, which we think are substantial. And at the same time gives upside for Baker Hughes shareholders, gives upside for GE shareholders, and allows us to preserve some flexibility around capital allocation that we think is important," Immelt explained.
The deal gives Baker Hughes shareholders a 30% to 40% premium including synergies, he noted. "So we like the structure."
Now was the best time time for the deal to happen because the industry is in a downtick in its cycle, Immelt pointed out. This means if the industry remains tough, then this deal is "still value accretive to both investors in a tough oil price environment." However, if the industry improves, then the company will "benefit from that as well."
"It's a very diversified portfolio in terms of short cycle and longer cycle operations. So I think it just gives us a chance to weather the cycle better and be able to create more value for our customers going forward," Immelt said.
Customers want change during cycles as well, he said. At this point, customers want more "productivtiy solutions," and the new company will be able to provide those, he concluded.
Shares of GE were higher in late morning trading, while shares of Baker Hughes were lower.
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TheStreet Ratings team rates General Eelctric as a Buy with a ratings score of B-. This is driven by multiple strengths, which the team believes should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks the team covers.
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